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How are SSDI benefits taxed?

It is that time of the year again, when Georgia residents are preparing to file their tax returns with the government. While this is often an unpleasant experience for many, it can be particularly difficult when individuals have questions about how to report certain income.

This is often the case when it comes to Social Security disability benefits. Typically, a person who receives SSDI benefits will receive a 1099 form, which indicates his or her total amount of benefits. The individual will also work with a Notice 703, which is a worksheet included with the 1099.

Box 5 in the 1099 shows the person's net SSDI benefits, which constitutes the total in Box 3 minus the total in Box 4. One half of the total in Box 5 serves as the person's income for purposes of making tax calculations. The person may also have other sources of income, such as pensions, wages, dividends and interest. In addition, there may be tax-exempt interest and exclusions. Ultimately, all of this information is used for Line E in Notice 703. From this number, the person then calculates an adjusted gross income based on the SSDI benefits. Whether those benefits are taxable will depend upon whether the result here is larger or smaller than the base value for the person's filing status.

Ultimately, the forms may sound complicated, and in certain cases they may be. However, by working through the information, as well as using other sources like Publication 915 from the IRS, individuals can obtain guidance through the tax preparation process. Individuals might also find it beneficial to work with a tax professional if they need further assistance in filing out their return.

Source: Fox Business, "Taxation of Social Security and SSDI payments," March 25, 2015

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